Power sector in limbo

The suspension of four commissioners of the Energy Regulatory Commission (ERC) came as a surprise to many, leaving a vacuum of leadership within the agency responsible for approving vital power contracts, certificates and other permits needed before a power project is cleared for commercial operation.

Only ERC Chairman and Chief Executive Officer Agnes VST Devanadera was left to man the supposedly five-member commission until Malacañang appoints new or interim commissioners. But even the ERC chairman, who was appointed in November 2017 and will serve the unexpired term of former ERC Chairman Jose Vicente Salazar until July 2022, could not act alone to decide on pending applications.

As a collegial body, the presence of at least three ERC commissioners is needed to constitute a quorum to enable the commission to adopt any ruling, order, resolution, or decision in the exercise of its quasi-judicial and quasi-legislative functions.

“The vacuum of leadership in the ERC could result in a standstill in the operations of the collegial body. This will, in turn, have an effect on our future power supply, resulting in the possibility of blackouts. In this light, I’m urging Malacañang to appoint acting commissioners to perform the duties of the suspended commissioners as soon as possible,” Senate Energy Committee Chairman Sherwin T. Gatchalian said.

However, the Palace has yet to act on the request of Cusi to appoint four members of the ERC on a temporary basis and to put the agency under the administrative supervision of the Department of Energy (DOE).

The ERC is the electric-power industry regulator composed of four commissioners and one chairman. The collegial body requires the presence of three members to issue orders, decisions and resolutions. In this situation, according to Gatchalian, the absence of four of its members leaves the body “powerless in making decisions critical to the energy sector.”

Executive Order 292, or the Administrative Code of 1987, states that the President has the power to temporarily designate a competent person or any official currently in active government service to perform the functions of an official working in the Executive branch who is unable to perform his duties. In which case, the President’s temporary designation should not exceed a period of one year.

Similarly, the Supreme Court, in a 2011 case, General v. Urro, ruled that the President has the power to make acting or temporary appointments, as long as he is not prohibited by the Constitution or by the law in order to prevent a hiatus in the discharge of official functions.

‘Debilitating impact’

Devanadera wrote to Duterte to seek guidance on the implementation of the Office of the Ombudsman’s decision that resulted in the suspension of the four ERC commissioners for one year.

“The debilitating impact of the Ombudsman’s decision to suspend the four incumbent ERC commissioners will render the operations of the agency in severe paralysis. The Ombudsman’s decision will have a substantial impact for the whole country and presents a dangerous regulatory risk that will severely affect the economic and financial environment of the country. That is contrary to the President’s pro-poor policy, as the 73.6 million Filipinos will be adversely affected by any nonaction on the part of the ERC,” Devanadera stated.

The absence of a quorum in the ERC will make it unable to perform any of its quasi-judicial and quasi-legislative functions, such as:

Hearings will not be conducted, as notices and schedules are set by the commission;
No deliberations on applications for approval of power supply agreements (PSAs), capital expenditure projects of the distribution utilities and the National Grid Corp. of the Philippines (NGCP), rate adjustments, pass-on charges;
Consumer complaints will not be acted upon;
Violations of industry players of existing laws, rules and regulations will not be acted upon;
Certificates of compliance (COCs) or provisional authorities to operate power plants will not be issued or renewed;
Market suspension will not be declared when warranted;
Decisions and resolutions cannot be promulgated and released;
Operations of the ERC will be affected, as personnel actions could not be undertaken; and
Procurements could not be awarded, especially the ERC meter seals and stickers being placed on electric meters of the distribution utilities, among others.

There are 162 petitions for approval of PSAs pending at the agency. Of these, 132 cases involve electric cooperatives and the 30 involve private distribution utilities.

The total value of all pending applications for ERC approval is close to P1.6 trillion.

“This P1.588 trillion—not just millions, but trillions—includes investments from both local and foreign entities. Without ERC action, the projects cannot proceed. The investors may get discouraged,” Devenadera said.

No disruption

Cusi, however, assured that he would not allow any disruption in the country’s power supply as a result of the delay in the processing of applications, including COC applications, before the ERC.

As such, the Department of Energy and the Wholesale Electricity Spot Market (WESM) agreed to allow power-generation companies with expired COCs, or with pending COC applications with the ERC, to operate and trade in the WESM.

“The move aims to protect electricity consumers by preventing disruptions in WESM transactions, while the ERC issue is being sorted out,” Cusi said, after approving the resolution on the agreement with the board of directors of the Philippine Electricity Market Corp. (PEMC), the operator of the WESM.

“The paramount consideration is the overall protection of public interest and the security of the supply of power. This is needed for the Philippines to meet its economic targets. This should take precedence over administrative issuances, especially when an administrative body is unable to act,” Cusi emphasized.

Cusi also directed PEMC and the DOE to work closely with the ERC to ensure the continuing operations of existing plants and to allow power generation from new plants that will be completed.

Under the DOE-PEMC resolution, power-generation companies with expired COCs can continue trading upon proof of submission of their application for the renewal of their COC with the ERC.

“New plants will also be permitted to trade or submit offers to the WESM upon proof of completion of testing and commissioning and other requirements for the issuance of a COC.”

Cusi explained: “The COC is a requirement for the registration and continuing participation of generation companies in the WESM. About 26 generation companies with a total of 3,314.60 megawatts [MW] generator capacities have expired or have expiring COCs in 2018.”

“Additional new capacities of at least 720 MWs are also expected to go on commercial operations within the next few months. If not allowed to participate in the WESM, the available electricity supply in the market will be curtailed, which can result in higher market clearing prices,” the energy chief said.

“As the summer months draw near, the use of electricity is anticipated to increase. The DOE is monitoring the situation to ensure the sufficiency of supply to meet the rising demand,” Cusi concluded.

The DOE and the NGCP are closely monitoring the power situation in the country.

“For the plants that are on scheduled shutdown, we have no problem with that. There is no impact on power interruption because these scheduled shutdown of plants are being coordinated with the system operator and other industry stakeholders,” Energy Undersecretary Felix William Fuentebella said in an interview.

The NGCP expects the total Luzon power supply to face constraints in April, due to the expected rise in demand brought about by rising temperatures. Moreover, power reserve in Luzon will be “thinnest” around May at 1,432 MW.

Still, the NGCP assured the public that there are sufficient power reserves based on current capacity, which includes power plants that are expected to come online within the year.

“We breached the 10,000-MW demand in power for the first time this year. With an average growth rate of around 5 percent from 2014 to 2017, we are expecting Luzon’s peak demand in 2018 to remain in that growth rate, also in May. The trend is reflected in the DOE’s 2018 forecast peak of 10,561 MW from 2017 actual demand of 10,054 MW, pegging growth rate at 5.04 percent. NGCP’s System Operations continues its coordination with power-generating plants to ensure that all maintenance shutdowns are timed not to coincide with peak periods, particularly at the height of summer,” NGCP stated.

NGCP’s forecast, according to its spokesman lawyer Cynthia Alabanza, was mainly based on DOE data, committed capacity from new power plants and scheduled maintenance shutdown of existing power plants.

Based on these, Alabanza said, “there’s no outage ” expected because there is enough supply. However, barring unforeseen circumstances, NGCP could not guarantee that there won’t be any blackout incidents.

If and when forced outage happens at a time when a number of power plants are on scheduled shutdown, Fuentebella said, the government could rely on the Malaya power plant. “We have Malaya to count on; that’s 420 MW. We are okay, but no one can guarantee that there will be no brownouts since the projection for this year took into consideration many factors, but not forced outage because no one can predict that,” Fuentebella said.

Effect on power supply

While the DOE is confident that the impasse at the ERC will not affect the country’s power supply, the power producers, for their part, are singing a different tune.

“For now, we can still say that it is not a critical concern today. We are okay until 2021 to 2022. But we have to start building more power plants for these to come on line beyond 2022, and given the regulatory issues, the question is ‘Will there be enough time for the PSA approvals to enable the next batch of power plants to operate on time?’ That’s the next uncertainty,” AC Energy President Eric Francia said.

It takes at least three years before a power plant is put online. In most cases, permitting process consumes the three-year period. The entire process could even take more than five years.

Separately, Aboitiz Power Corp. also appealed to the Duterte administration.

“We are appealing to the national leadership to resolve the ERC issue as soon as possible so the commission can get back to work and act on many pending issues awaiting their decision,” AboitizPower President Antonio Moraza said.

In a text message, Moraza said the power group appeals for the issuance of COCs, among others, for projects that will be completed soon. “We will be needing COCs for the projects that will be completed soon, plus PSA for TVI, and as soon as possible for TMI.”

He stressed that a working regulatory body balances the welfare of the paying consumers, interests of the private investors, and the government’s desire for reliable and ample power.

The Manila Electric Co. (Meralco), meanwhile, said the country’s power supply and security of supply could be put at risk if the ERC could not perform its mandate.

“We are particularly concerned that absent that ability, it may put at risk the capability of the industry to assure, not only supply to customers, but security of supply moving forward,” Meralco President Oscar Reyes said.

“The power industry is a very heavily regulated industry. Its operations and its service to customers are largely affected by the ability of its regulator, ERC, to function effectively,” he added.

He commented that the country is “very well positioned in terms of its growth trajectory” and “we don’t want to lose that sort of momentum and confidence.”

Semirara Mining and Power Corp. Chairman Isidro Consunji also shared the same concern. “We hope ERC issues are resolved so it can function properly. So much has to be done. Otherwise another crisis in the next five years or so,” Consunji said in a text message.

The Philippine Independent Power Producers Association Inc. (Pippa) has also elevated to the Office of the President its concern over the delay of processing various applications.

In a letter dated January 24, Pippa President and Executive Director Anne Estorco Macias told the President that the energy industry needs a fully functional ERC to effectively implement its mandate.

“Without a working commission and putting a pause on the important work of the ERC, we will find ourselves without the needed approvals for PSAs, connection agreements, price determination regulation, compliance certificates and licenses,” Macias stated in her letter, which was received by Malacañang on January 29.

These approvals and licenses are dependent on the ERC and will negatively impact everyone—from the generators, distribution utilities and, ultimately, to the consumers.

“We cannot afford any delay on these activities as it will be detrimental, not only to the industry, but to each and every consumer who relies on energy security,” the Pippa official said.

Pippa is composed of 28 generators engaged in power generation and its members have a collective 17,578.85 MW of grid-installed capacity.

Consumer group CitizenWatch, meanwhile, urged the industry players and stakeholders “not to take advantage of the situation and to closely monitor any artificial hike in electricity rates.”

“The stability of supply and price of power are of utmost importance, not only for the consumers but for the entire power industry,” it said.

“Taking into serious consideration the possible power outages and paralysis of the power industry due to the suspension of four commissioners of the ERC, CitizenWatch urges all parties, both government and private sectors alike, to do their part in ensuring that the power supply remains to be uninterrupted, so as not to impede the progress of the entire economy.”